Real estate prices in cities like Mumbai are affected by several key factors: Land costs are totally market driven and have increased as developers bid against each other for redevelopment projects. Construction costs have also risen significantly due to increases in materials like steel and cement as well as labor costs. Additionally, costs imposed by the Municipal Corporation of Greater Mumbai have increased substantially from 4-5% of total costs to 25-30% due to annual hikes in ready reckoner rates. New regulations under RERA and GST have also imposed additional financial burdens on developers that get passed on to consumers. As a result of these increased costs, real estate prices are unlikely to become cheaper in the near future.

1. Will Real Estate become
cheaper?

2. Introduction
• This is a question that is pondered upon by
almost everyone and asked by many. To
answer this question, we need to know all the
factors that affect the pricing in cities like
Mumbai.

3. Here are some Key Factors that directly
affect the pricing :
•Land Cost
•Construction Cost
•MCGM Costs and now
•RERA
•GST

4. Land Cost
• It is a totally market driven cost, expectations by a society or a land-
owner.
• How do they perceive the market? Assume that a neighboring
society has gone for redevelopment, where the members got 30%
extra area, in addition to the other allowances/rent etc.
• Now, your society is in talks with developers to go for re-
development.
• At an individual level, you have set the benchmark of extra area to
be at least 30%, if not more.
• Then there is a bidding war between developers to give that extra
1% to sign the agreement with that society.
• This has a direct bearing on the final cost to the developer.
• Along with extra area, rent and corpus need to be given as well,
besides various other miscellaneous costs.

5. Construction Cost
• Two most important contributors in construction
cost are steel and cement.
• These two items have gone up significantly in the
last 2-3 years, escalating cost of construction.
• Not to mention, the labor cost of contractors
involved.
• Because of improved job prospects in rural India,
cost to retain laborers is increasing by the day.
• This significantly adds to the construction cost.

6. MCGM (Municipal Corporation of
Greater Mumbai)
• Government increases the ready reckoner rate, to
which all the corporation costs are directly linked.
• This annually increases at the rate of 5% to as
high as 15% in some areas, which directly
increases the premiums due to MCGM.
• Almost 25-30% of the total costs can now be
attributed to this corporation costs.
• To give a perspective, it accounted for only 4-5%
of the total cost few years back.

7. RERA (Real Estate Regulatory
Authority)
• With the new compliances in place, which is a
good thing, developers will incur a financial
cost, due to restrictions and certain caveats in
the Act, which restrict the usage of the
revenue received by the developer till
occupation certificate is granted for that
project.
• The end user is going to bear the brunt on the
increased compliance cost.

8. GST
• Prior to the implementation of GST, Service tax
and VAT were levied that accounted for 5.5% of
the total agreement value against 12% GST.
• This tax does have some advantages in offsetting
input costs.
• However, in a city like Mumbai, construction cost
accounts for 20% of the land value, if not less.
• As a result of this, around 2% GST can be offset,
which means that the end user still needs to pay
10% against the previously levied tax of 5.5%,
furthering increasing the costs.